Monday, June 18

The Real Job Creators

Which came first, the chicken or the egg? Now let's focus that question on the economy: Which comes first, demand or supply? Well, Mitt Romney and most of the right would have us believe that supply leads demand, that noble 'job creators' must have their tax burden reduced in order to bestow jobs upon the middle class. You can think of this as the 'if you build it, they will come' school of economics. And, simply put, it's bullshit. Ceteris paribus, demand always comes before supply. And thus, growth in the economy comes from an empowered consumer, not from reducing tax burdens on employers. John T. Harvey, in a recent piece on Forbes.com, makes the point pretty well:

"...every rational entrepreneur’s goal is to reduce, not increase, the number of workers they have to pay. And quite right. Entrepreneurs have families, too, and they need to feed and clothe them. It would be irresponsible to do otherwise.

"Second and more fundamentally, no matter how much you lower costs, if you don’t have more customers, you won’t hire more workers. If the demand for goods and services stays where it is today and we only cut industry taxes and regulations, there is absolutely no reason to think that firms would expand employment. Rather, they would continue to produce at the same level and simply earn higher profits. On the other hand, if we leave taxes and regulations untouched but increase demand, entrepreneurs will happily add workers. And that is the root of the problem today. The bottom line, lost on Mr. Romney and many others, is that the real job creators are consumers. The direct route to reducing unemployment is boosting demand, not reducing costs."